Unique Considerations When Opening or Reopening a Business in the LA Fire Zones

By Katherine Annuschat McCaig

The 2025 Eaton and Palisades fires caused vast destruction, but in the wake of such destruction there may be unique opportunities for people looking to open or reopen a business in the zones impacted by such fires. Opening a business in an area impacted by the wildfires also carries a substantial amount of risk, some of which can be mitigated by the smart negotiation of the business’s commercial agreements. Below is a high-level summary of some of the material issues a party should carefully scrutinize and negotiate before entering into any such agreement.

Exclusivity Requirements
Many commercial agreements, from franchise agreements to lease agreements to supplier agreements, impose exclusivity obligations on one party. Examples of an exclusivity provision include imposing a specific territory in which the contracting party may operate, or requiring a contracting party to only operate in one channel of the business. A party opening or reopening a business in a fire zone should consider negotiating a temporary expansion or other flexibility on any such exclusivity arrangements while their particular zone recovers from the impacts of a fire. This may allow the party a chance to remain profitable by exploring additional opportunities or pursuing business in territories that are not impacted by the fire.

Operating Covenants
Operating covenants or related obligations require a contracting party to keep its business open and operational, or otherwise maintain some minimum level of working capital or inventory, during the term of the contract. A party opening or reopening a business in a fire zone should consider negotiating a delay in the imposition of such requirements while the territory is recovering from the impacts of a fire, and/or ensure that any such covenants would be suspended or otherwise relaxed during any future fire event in the area in which the business is being operated.

Insurance Requirements
Any business that is operating in a fire zone should pay particular attention to any insurance requirements imposed by their contracts. Insurance may be prohibitively expensive or otherwise difficult to obtain for a business operating in a known fire zone, and accordingly a contracting party should consider resisting any strict insurance minimums or otherwise consider negotiating a reasonable delay in the imposition of those requirements.

Force Majeure Clauses
Force majeure clauses are provisions that excuse a contracting party from performance under their contract due to unforeseen and uncontrollable events. Parties operating a business in a fire zone may want to consider ensuring that wildfires and similar events, including the effects of a wildfire during the rebuilding process, are included within the force majeure clause, as a party may be unable to perform their contractual obligations due to the effects of a fire. Moreover, if the contracting party is the party with a payment obligation under the contract, such as a customer to a vendor under a vendor agreement, such party may want to consider ensuring the force majeure clause also excuses any such payment obligations, which they may be unable to meet while recovering from the effects of a fire. Conversely, if the contracting party is the one expecting payment, they should consider negotiating the exclusion of payment obligations from the force majeure clause, as the failure by the customer to make any such payments could be disastrous to the other party.

Assignability
Many contracts impose restrictions on the assignability of the contract, requiring either the payment of a transfer fee or specific consent by the other party in order to assign the contract. A party opening or reopening a business in a fire zone should consider negotiating flexibility in an assignment clause, including by resisting any fees on transfers and by eliminating any consent requirement, especially if the assignment is to a successor or acquirer of the party’s business. This will help protect the party if the business does not take off and allow the party to explore options to exit the contract by assigning it to an acquirer or other successor. Similarly, a contracting party should also consider seeking a release of liability if there is a valid assignment of the contract.

Co-Tenancy Clauses
Specifically with respect to commercial lease agreements in a shopping center or similar multi-tenant location, a prospective tenant should consider pushing for the inclusion of a co-tenancy clause, which would allow the tenant to reduce their rent payments, terminate the lease, and/or otherwise temporarily suspend business operations if tenants occupying a certain percentage of a shopping center are no longer open for business, or certain anchor tenants cease operations at the center. This would be especially important for commercial centers that may have lost foot traffic or business due to the effects of the wildfire and are in the process of recovering, as such factors may be vital to the success or failure of a new business. This would reduce the risk for a tenant who ultimately needs to abandon the new or reopened business due to the slow or complete lack of recovery in the particular area.

The above highlights just a few of the general areas that a party should keep in mind when negotiating commercial agreements in order to protect themselves from the heightened risk that comes with opening a business in a fire zone. In addition to the above, a party should always consider seeking legal advice before entering into any agreement.